Last week, we published the details of the expected Deferred Prosecution Agreement (DPA) which was yet to be approved by the UK’s High Court on 17 January 2017.
The Serious Fraud Office (“SFO”) has now confirmed, that the DPA was approved by Sir Brian Leveson, President of the Queen’s Bench Division, and the DPA, Statement of Facts and Judgment have now all been published. The DPA enables Rolls-Royce (Rolls-Royce Plc and Rolls-Royce Energy Systems Inc.) to account for criminal conduct spanning three decades in seven jurisdictions and involving three business sectors.
The allegations against Rolls-Royce arise out of the conduct of its Civil Aerospace business (“Civil”), Defence Aerospace business (“Defence”) and former Energy business (“Energy”) and relate to the sale of aero engines, energy systems and related services. The key components of the bribery involved agreements to make corrupt payments to intermediaries, and the failure by Rolls-Royce to prevent bribery.
Rolls-Royce employs over 40,000 people in more than 50 countries and was described by Sir Brian Leveson as “a jewel in the UK’s industrial crown”. This is the largest investigation of the SFO to date, spanning over 4 years, including the arrests of overseas intermediaries, including searches of their premises and interviewing individuals using their powers of compulsory interview.
Despite the bribery that has come to light, it is reported in the Statement of Facts, that Rolls-Royce had a number of written policies and committees in place, relevant to its appointment of intermediaries, and had in fact appointed a ‘Big 4’ accountancy firm in 2009, to complete an Anti-Bribery and Corruption (“ABC”) Compliance review. It appears that Rolls-Royce responded to the recommendations of the 2009 review by issuing a more detailed ABC policy, including the need for proper identification of intermediaries, and risk assessments to be carried out. Rolls-Royce later employed Lord Gold to carry out a further investigation into the company’s approach to bribery and corruption in 2013, and it appears Lord Gold is to continue his work with Rolls-Royce as part of the agreed terms of the DPA (discussed in further detail below).
The UK draft indictment (contained within the Statement of Facts) included 12 counts of alleged bribery, that can be categorised as follows:
- Conspiracy to Corrupt – Civil Indonesia (1), Civil Thailand (3), Energy Russia (1)
- False Accounting – Defence India(2)
- Failure to Prevent Bribery – Energy Indonesia (1), Energy Nigeria (1), Civil Indonesia (1), Civil China (1), Civil Malaysia (1)
The key terms upon which the agreement was approved, and prosecution deferred, were:
(i) The past and future cooperation of Rolls-Royce;
(ii) Rolls-Royce’s disgorgement of profit of £258,170,000;
(iii) Rolls-Royce’s payment of a financial penalty of £239,082,645;
(iv) Rolls-Royce’s payment of costs of £13,000,000 (TBC); and
(v) Rolls-Royce, at its own expense, agreeing to complete the Compliance Program and actions required.
The payments of the disgorgement and financial penalty, have been agreed to be paid in four instalments, the first being £119 million by 30 June 2017, then three further payments at in 2019, 2020, and 2021. This will allow Rolls-Royce a ‘year off’ from making any payment in 2018.
Further conditions Rolls-Royce must meet, are to maintain all material gathered as part of its internal investigation and intermediary review for the term of the agreement, it must co-operate fully with any ongoing investigations and/or prosecutions brought by the SFO (which would include the investigations ongoing in relation to individuals), and to comply with a specific Compliance Program.
The Compliance Program is set out in Section F of the DPA, and builds upon the previous involvement and work of Lord Gold. So far, Lord Gold has produced two interim reports. Rolls-Royce is required to obtain a third and final report by 31 March 2017, and within 3 months of receipt of this report, Rolls-Royce is to produce an Implementation Plan and provide this to the SFO.
The DPA requests that Rolls-Royce must request specific input from Lord Gold in relation to:
- Rolls-Royce’s offer or agreement to provide “concessions” in the form of cash or credits, or through any other means, directly or indirectly to customers;
- the geographical distribution, number and professional competence of Rolls-Royce compliance employees;
- the tailoring of compliance training to meet jurisdictional risks; and
- the effective anti-bribery and corruption policies, procedures and controls of Rolls-Royce Power Systems.
The Implementation Plan must be ‘to the satisfaction of Lord Gold’, and it is identified that the ultimate responsibility for identifying, assessing and addressing risks remains with the Board of Directors of Rolls-Royce.
The DPA is valid for a specific term, up to the 17 January 2022; or a date after 17 January 2021, on which the Serious Fraud Office (SFO), following a reasonable request from Rolls-Royce, confirms in writing that the DPA has concluded and does not provide protection against prosecution for any conduct not disclosed, and the SFO has reported that the investigation into the conduct of individuals will continue.
Given the seriousness of the crimes, and the “egregious criminality over decades”, it has been questioned whether a DPA was appropriate to be granted in these circumstances, and whether Rolls-Royce has in fact “got off lightly”. Some commentary has queried whether a prosecution was not brought, due to the the company being ignorant of what was occurring. This was not the case, as Leveson in his Judgment, stated that senior management and the controlling minds of the company were involved, and knew about misconduct in 2010, and failed to report it. It was made clear however, that none of the current senior management involved were still at the company, after a series of resignations had occurred.
A driving factor in the Court’s approval of the settlement, appears to have included economic concerns over prosecuting the company, including the consequences on individuals employed by the company and the reduction in competition in an already concentrated market. Furthermore, had Rolls-Royce been prosecuted, the criminal conviction might have rendered it ineligible to contract with certain public bodies.
However, despite the enormity of the fines, and the fact that the company has apologised “unreservedly” in the press this week, Rolls-Royce could still be said to have “got off lightly” in this matter. The company’s share value having increased by almost 4.4pc on Tuesday. This reportedly adds almost as much to the company’s market value as the size of the penalty it has to pay.
We anticipate the fall-out from this matter may continue, with the former CEO of Rolls-Royce, Sir John Knight, already being called to lose his knighthood following the announcement, the ongoing investigations by the SFO of individuals, and the impact on long term share value remaining to be seen.
The DPA is considered a huge success for the SFO, and SFO Director David Green, demonstrating the power and ability of the regulatory authority to carry out long term, global investigations.
The US Department of Justice has published its own deferred prosecution agreement with Rolls-Royce concerning its energy division, and the company has agreed to pay the US regulator nearly $170 million, and $25.6m to Brazilian regulators as part of the global resolution of this matter.